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A level load that comprises yearly fees for fund marketing, distribution, and servicing, all based on a predetermined percentage, is what distinguishes Class C mutual fund shares from other classes. For the company or person assisting the investor in selecting which fund to purchase, these costs equate to a commission. These charges are made once a year.
By contrast, a front-end load levies costs at the time shares are purchased, a back-end load levies fees at the time an investor sells shares, and no-load funds have no commission fees at all—the expenses are simply factored into the fund’s net asset value (NAV).
What is the difference between class A vs class C shares and B Class shares?
| Aspect | A Class Shares | B Class Shares | C Class Shares |
| Sales Charge | Front-end load, meaning investors pay a fee when purchasing shares. | Back-end load, wherein investors pay a fee when selling shares. | Level-load, with a consistent annual fee assessed on the fund’s assets. |
| Expense Ratio | Typically, lower expense ratios compared to B and C class shares. | Generally higher expense ratios than A-class shares. | Expense ratios usually fall between A and B-class shares. |
| Redemption Fees | Minimal or no redemption fees. | It may have redemption fees that decline over time, usually disappearing after a set number of years. | Redemption fees tend to be higher initially and decrease over time, similar to B-class shares. |
| Shareholder Services | Typically offer a wide range of shareholder services, such as discounts on sales charges for larger investments. | May provide fewer shareholder services compared to A class shares. | May have fewer shareholder services compared to A and B-class shares. |
| 12b-1 Fees | Lower or no 12b-1 fees, which are annual fees used for marketing and distribution expenses. | Higher 12b-1 fees, which can increase over time, potentially impacting overall returns. | 12b-1 fees may be moderate, with a portion allocated for distribution and marketing costs. |
| Investment Threshold | Often needs a higher initial investment compared to B and C class shares. | It may have a lower initial investment requirement compared to A-class shares. | Typically have lower initial investment requirements compared to A-class shares, making them accessible to a wider range of investors. |
| Cost Structure | Generally lower overall costs due to lower sales charges and expense ratios. | Higher overall costs due to potentially higher expense ratios and back-end load fees. | Moderate overall costs, with consistent level-load fees and potentially lower 12b-1 fees compared to B-class shares. |
Advantages of investing in class C shares
Now that we have a better understanding of what Class C shares are and how they differ from other types of shares let’s explore some of the advantages of investing in them.
- Accessibility
Class C shares are often priced lower compared to other types of shares, making them more accessible to small investors. This allows individuals with limited funds to invest in organizations that they believe have potential for growth.
- Low entry point
Since Class C shares are usually priced lower, traders can enter the market at a lower price point. This makes it easier for them to diversify their portfolios and spread their risk across different companies.
- No voting rights
While this may seem like a disadvantage, not having voting rights can actually be beneficial for some investors. By not being involved in company decisions, investors can focus on the company’s performance without any emotional bias.
- Tax benefits
Class C shares are not subject to double taxation, unlike Class A and B shares. This means that companies do not pay taxes on their profits before distributing dividends to all the shareholders. As a result, investors receive more favorable tax treatment when holding Class C shares.
Disadvantages of investing in class C shares
Apart from the advantages, there are also some drawbacks to investing in Class C shares.
- Lack of Control
Since Class C shares do not come with voting rights, investors have no say in company decisions. This means that they have no control over major business decisions and can only rely on the company’s performance to generate returns.
- Low dividend payments
Class C shares do not offer dividends to their shareholders. This means that investors can only profit from these shares through capital appreciation.
- Volatility
Class C shares are usually more volatile compared to other types of shares due to the lack of voting rights and lower price points. This can make them a riskier investment option for some individuals.
Tips for investing in class C shares
If you are considering investing in Class C shares, here are some tips to keep in mind:
- Do your research
Before investing in any type of share, it is essential to do your research and understand the company’s financials and performance. This will help you make an informed decision about whether or not to invest.
- Diversify your portfolio
As with any type of investment, it is important to diversify your portfolio to spread out the risk. Investing in Class C shares as part of a well-diversified portfolio can help balance the potential risks and rewards.
- Consider your investment goals
Before investing, it is essential to consider your investment goals and how Class C shares fit into them. If you are looking for long-term growth, Class C shares may not be the best option since they do not offer dividends.
Who should invest in class C shares?
Investors who want to withdraw assets within a year may wish to steer clear of C-shares due to the back-end burden that is assessed on short-term redemptions. However, long-term investors may find C-shares to be a less-than-optimal choice due to their higher recurring costs.
Holding investments with different fees for an extended length of time, such as a retirement fund, can result in major variations in their final values. In other words, if investors intend to hold the fund for a brief, intermediate period—ideally more than a year but shorter than three—Class C shares would be the best option. In this manner, you hang on long enough to escape the CDSC without letting the high expense ratio significantly that will reduce the total return on the fund.
The bottom line
Class C shares are a type of stock that is often overlooked but can be an attractive investment option for some individuals. They provide accessibility, low entry points, and tax benefits but also come with drawbacks such as lack of control and low dividend payments. As with any investment, it is essential to do your research and consider your goals before investing in Class C shares. So, it can be a good addition to your portfolio if you are looking for diversity and potential growth opportunities.
FAQs
Class A shares come with full voting rights and are only available to institutional investors or high-net-worth individuals. Class B shares offer multiple votes per share and are usually issued by family-owned companies or private corporations.
Class C shares are a type of stock issued by a company without voting rights. They are often priced lower than other types of shares and offer accessibility to small investors.
It depends on an individual’s investment goals. Since Class C shares do not offer dividends, they may not be suitable for those seeking long-term growth opportunities.
Some advantages of investing in Class C shares include accessibility, low entry points, no voting rights, and tax benefits.